Muscat: The Sultanate's banking regulator is planning to introduce a new stipulation on commercial banks to provide a minimum five per cent of their total loan portfolio to small and medium enterprises (SMEs), as part of a series of other initiatives to boost small business units in line with the recent Royal Directives, two top-level officials of the Ministry of Commerce and Industry told journalists here yesterday.

This is against the present average lending of two per cent to SMEs by the commercial banks in Oman.

"Five per cent of commercial banks' total portfolio has to be provided to SMEs," Ahmed Hassan Al Dheeb, Undersecretary at the Ministry of Commerce and Industry, said, on the sidelines of SME Exhibition and Conference. This is part of the Royal Directive, which were issued at the recent SME symposium in Bahla.

The new regulation, which will be implemented before the end of the year, will immensely help 91,000 SMEs in the country, added Salah bin Hilal Al Maawali, Director-General of Directorate General for Development of SMEs.

Presently, Omani banks can lend to a maximum of 40 per cent as personal loan and 10 per cent of total loan portfolio as mortgage finance.

Aggressive in fundingSince banks will be compelled to provide five per cent of total lendable resources only to SMEs, these institutions will be more aggressive in funding these small units, which will help eliminate certain barriers (that are prevalent now) for offering loans at competitive rates. "The banks have to reduce the barriers, collaterals and interest rates. This will ensure SMEs easy access to funds. This kind of regulation is already prevalent in some countries and are successful," noted Al Maawali.

The Central Bank of Oman, commercial banks and the Directorate General for Development of SMEs will discuss the issue in detail for implementation.

Al Dheeb said that the other major initiatives to ensure fast growth of SMEs include speedy payment of funds for completed projects by government and large companies, review of regulation related to SME funding by Oman Development Bank and special training for employees who deal with these units.

"We have to train government employees to deal with SMEs. ODB is also reviewing its regulation and the bank has to submit the report before the end of the year," he explained.The undersecretary also noted that 10 per cent of total contracts of the Tender Board have to be awarded to SMEs.

Bankruptcy lawFurther, the government is also planning to bring in new laws for bankruptcy and monopoly. "In Oman, if you are bankrupt, you can not open an account, can not get a cheque book. It will not help you to start again." These issues can be solved with the new bankruptcy law.

Al Maawali said the government has formed a committee with members from different sectors for implementing the Royal Directives within the stipulated timeframe. The panel (which is headed by Ahmed Al Dheeb) members include Salam Al Shaksy, CEO of National Bank of Oman, Qais Al Yousef from Al Yousef group, Khalid Al Zubair, Chairman of SME committee of Oman Chamber of Commerce and Industry and Al Maawali.

As many as 90 per cent of Oman's corporate sector is constituted by SMEs, which contribute around 13.8 per cent of the gross domestic product. Al Maawali said some small entrepreneurs use personal loan for funding their business.

Referring to the loan guarantee scheme of two banks (Oman Arab Bank and Bank Muscat), which was introduced in coordination with the Ministry of Commerce and Industry, he said all banks and leasing companies may extend this service to SMEs, after studying the results of the pilot project.

Under the pilot project, the authorities have decided to offer credit guarantee scheme (loan without the backing of collateral security) to 50 applicants in the first year.